The green-shoots of demand growth seen in some rural pockets is driven by farm loan waivers and not likely due to real increases in rural incomes and wages, indicative of the fact that the economy is still some time away from a full-fledged rural revival, says a report.

Noting that rural demand has been on the rise in recent months, the report says the upward trend is visible from the sale of big ticket items like tractors and the latest corporate earnings of consumer goods companies.

Rising urban demand

According to recent Nielsen data, rural growth outpaced urban demand, rising by 13.5% in the March quarter. Many large States have announced farm loan waivers last year, as farmer suicides became a big political tool. Last week, Karnataka became the latest State to join U.P., M.P., Maharashtra and Punjab, among others, to write off farm loans.

“But the extent of this pick-up depends on a number of factors. Firstly, a good monsoon alone will not do the trick. Adequate procurement and the effectiveness of MSPs to act as a floor for crop prices will be crucial,” a report by HDFC Bank said.

Though there are clear signs that rural demand is recovering from setbacks due to the 2016 note-ban and GST disruptions, “we have our reservations over the extent of this increase as this could be due to the loan waivers,” says the report penned by the bank’s chief economist Abheek Barua.

“The recent jump in items such as tractor sales could have at least been driven by farm loan waivers A similar phenomenon was witnessed in 2009 when the then government had waived farm loans and tractor sales grew by 30%,” he explained.

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